MWG Update – OUTPERFORM

MOBILE WORLD INVESTMENT CORP (MWG VN)

The company warmed up its growth in 4Q2023, which encouraged us to maintain expectations about a better year in 2024 fueled by a gradual revival in consumer spending. However, we revise down our earnings projections for 2024 by 12% to intensify caution about improvements in gross margin. Maintain OUTPERFORM rating with a revised target price from VND51,500 to VND50,400/share (~ total return of 10.3%).

MWG announced net revenue of VND118,280bn (-11.3% YoY) and EAT of VND168bn (-95.9% YoY) in 2023, weighed by TGDD & DMX’s dim performance.  However, the cumulative decline tapered in the second half of the year. 

The TGDD & DMX chains, together capturing 71% of MWG’s sales in 2023, slumped by 19.4% YoY in revenue in 2023 due to weak consumer spending for ICT products – durable goods and price war among retailers.

BHX, making up 27% of MWG’s sales, generated sales growth of 16.7% YoY in 2023 thanks to rising revenue per store. 

An Khang reported VND2,200bn of revenue (+43% YoY), capturing c.2% of MWG’s sales in 2023. The chain still puts a priority on fostering revenue per store and optimizing operations over expanding the store network.

The company’s gross margin shrank to 19.0% in 2023 (2022: 23.1%) while the SG&A expenses to net revenue ratio climbed to 18.7% in 2023 (2022: 18.2%). 

Inventories at YE2023 contracted by 15% YoY and 1% compared to those at the end of 1H2023, in line with the company’s goal to reduce and closely control inventories. The net debt to equity ratio strengthened to -5.5% at YE2023 from 6% at YE2022 (i.e from net debt to net cash).

For 2024, MWG targets VND125,000bn of revenue (+5.7% YoY) and VND2,400bn of EAT (+1330% YoY). Besides, the company also revised BHX’s private placement plan from 20% at max earlier to 5%-10% given advances in the chain’s business performance and cashflow. The transaction is projected to complete in 1H2024.

In sum, our projections for MWG’s net revenue and EAT are VND126,254bn (+6.7% YoY) and VND2,508bn (+1395% YoY) in 2024, 12% lower than our previous earnings forecast due to a slower-than-expected improvement in TGDD & DMX’s gross margin in 4Q2023. Our target price for MWG at VND50,400/share (equivalent to a total return of 10.3%), 2% lower than the previous update.